Iata upgrades airline profit forecast

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The airline industry’s main representative body on Monday raised its profit forecast for carriers in 2013 because they are flying more passengers on their aircraft and benefiting from lower-than-expected fuel prices.

The International Air Transport Association estimated that airlines would record a combined net profit of $12.7bn this year, up from a previous forecast of $10.6bn. This latest forecast would amount to a 67 per cent increase compared with 2012.

Iata issued the data as most of its 240 member airlines endorsed a strategy to tackle the industry’s carbon dioxide emissions. At the body’s annual meeting in Cape Town, carriers supported a market-based mechanism to help ensure that the industry achieves carbon neutral growth from 2020, although final decisions rest with governments working through the United Nations.

Against a backdrop of reduced estimates for global economic growth, Iata warned that many passenger airlines were grappling with wafer-thin profit margins, and therefore struggling to generate adequate returns for investors.

Tony Tyler, Iata director-general, said: “Improved performance is what’s keeping airlines in the black. Airlines are putting more people in seats.”

He noted the industry’s load factor – the percentage of seats filled on aircraft – was expected to hit a record 80.3 per cent this year, which would be 6 percentage points above the level recorded in 2006.

The industry is also belatedly showing signs of discipline when deploying aircraft, because capacity is due to expand this year at a slower rate than passenger traffic, which should provide airlines with the opportunity to raise fares.

Carriers are also benefiting from lower-than-expected fuel prices, with the average price of Brent crude oil this year expected by Iata to be $108 per barrel, compared with $111.80 in 2012.

Iata said a trend was emerging across the world’s regions in which large airlines were enjoying stronger profitability than smaller rivals.

This is particularly apparent in the US, where consolidation is set to reduce the number of large airlines from eight big carriers a decade ago to four following the proposed merger between American Airlines and US Airways.

Iata expects North American airlines to report operating margins of 4.2 per cent in 2013 and combined net earnings of $4.4bn, up from a previous forecast of $3.6bn.

By contrast, European airlines contending with the eurozone crisis are expected to record operating margins of just 1.3 per cent this year – meaning the region would have the second-worst level of profitability after Africa.

European airlines are set to report a combined net profit of $1.6bn in 2013, up from a previous estimate of $800m, with the improvement partly driven by how Air France-KLM, British Airways and Lufthansa are witnessing solid demand for transatlantic flights.

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